AA v LA
[2017] NZHC 646
•5 April 2017
NOTE: PURSUANT TO S 35A OF THE PROPERTY (RELATIONSHIPS) ACT 1976, ANY REPORT OF THIS PROCEEDING MUST COMPLY WITH SS 11B TO 11D OF THE FAMILY COURTS ACT 1980. FOR FURTHER INFORMATION, PLEASE SEE COURT/LEGISLATION/RESTRICTIONS-ON-PUBLICATIONS.
THIS JUDGMENT MAY BE CITED AND REPORTED AS VIVIAN V KELLERMAN IN ACCORDANCE WITH PARAGRAPH [41] OF THIS JUDGMENT.
IN THE HIGH COURT OF NEW ZEALAND CHRISTCHURCH REGISTRY
CIV-2016-409-663 [2017] NZHC 646
UNDER Section 39 of the Property (Relationships)
Act 1976
IN THE MATTER OF
an appeal against the judgment of the
Family CourtBETWEEN
AA
First AppellantAND
LA
First Respondent
CIV-2016-409-670
UNDER Section 39 of the Property (Relationships) Act 1976
IN THE MATTER OF an appeal against the judgment of the
Family Court
BETWEEN LA
Second Appellant
AND AA
Second Respondent
Hearing: 5 April 2017
(On the papers)
Appearances:
S Forrester for the First Appellant/Second Respondent
P Tucker for the Second Appellant/First Respondent
VIVIAN V KELLERMAN [2017] NZHC 646 [6 April 2017]
Judgment: 5 April 2017
JUDGMENT OF MANDER J
Background
[1] The husband and the wife both appealed a decision of Judge Moran in the Family Court making orders relating to the division of their property following their separation.1 I released my judgment on 20 December.2
[2] As to costs, I stated:
[148] With the exception of one discrete point I have identified relating to the replacement carpet, the husband has been unsuccessful on his appeal. Notwithstanding the wife’s lack of success on the points raised on her cross- appeal, I consider that on balance the husband to be the unsuccessful party on the appeal. My preliminary view is that having regard to the respective merits of the parties’ arguments he should be required to pay 75 per cent of the wife’s costs on a 2B basis. I provide that indication only as a guide to my present thinking on costs, reflecting as it does the relative success of the parties and in particular the wife’s success in having the Family Court’s decision substantially upheld. Should counsel wish to be heard on the issue, they should exchange and file memoranda in the usual way (not more than three pages).
[3] At the time I made this observation I was unaware the husband had been granted legal aid. The wife seeks a formal order that the husband pay 75 per cent of her costs, the husband seeks an order that costs lie where they fall.
Submissions
The husband
[4] The husband relies on s 45 of the Legal Services Act 2011 (the Act), which reads:
1 A v A [2016] NZFC 5749.
2 Vivian v Kellerman [2016] NZHC 3163.
45 Liability of aided person for costs
(1) If an aided person receives legal aid for civil proceedings, that person’s liability under an order for costs made against him or her with respect to the proceedings must not exceed an amount (if any) that is reasonable for the aided person to pay having regard to all the circumstances, including the means of all the parties and their conduct in connection with the dispute.
(2) No order for costs may be made against an aided person in a civil proceeding unless the court is satisfied that there are exceptional circumstances.
(3) In determining whether there are exceptional circumstances under subsection (2), the court may take account of, but is not limited to, the following conduct by the aided person:
(a) any conduct that causes the other party to incur unnecessary cost:
(b) any failure to comply with the procedural rules and orders of the court:
(c) any misleading or deceitful conduct:
(d) any unreasonable pursuit of 1 or more issues on which the aided person fails:
(e) any unreasonable refusal to negotiate a settlement or participate in alternative dispute resolution:
(f) any other conduct that abuses the processes of the court.
(4) Any order for costs made against the aided person must specify the amount that the person would have been ordered to pay if this section had not affected that person’s liability.
(5) If, because of this section, no order for costs is made against the aided person, an order may be made specifying what order for costs would have been made against that person with respect to the proceedings if this section had not affected that person’s liability.
…
[5] “Aided person” is defined in the Act as:3
(a) … a person who is granted legal aid under this Act or the former Act;
and
(b) includes—
(i) a person who is granted legal aid on an interim basis:
(ii) a person whose grant of legal aid has been withdrawn under section 30
[6] The husband argues that no order of costs should be made against him because he is a legally aided person and there are no exceptional circumstances that mean an order should be made.
[7] He claims he was awarded legal aid before the appeal was heard, and that notice was given to the respondent. The husband provides the following chronology:
· 4 August – Notice of appeal filed by the husband.
· 5 August – Notice of appeal filed by the wife.
· 29 August – The husband applies for legal aid.
· 6 September – The husband receives a letter saying his legal aid application has been referred to a specialist advisor.
· 3 October – Legal Services Agency requests further information.
· 15, 25 and 26 October – The husband’s counsel contacts the Legal
Services Agency for update and is told no decision has yet been made.
· 27 October – The husband’s legal aid approved.
3 Section 4(1).
· 28 October (Friday) – Amendment to grant completed and submitted to Legal Services Agency, fee waiver form completed and submitted at the High Court, and the Court formally advised that the husband is in receipt of legal aid. Counsel for the respondent notified over the telephone that the husband is now legally aided.
· 31 October (Monday) – Appeal hearing.
The wife
[8] The wife submits that the husband’s legal aid status does not provide costs immunity. First, she submits the notice requirements under s 24 of the Act were not fulfilled by the husband. That sections provides:
24 Provider in civil proceedings to notify other parties
(1) When a party to civil proceedings is granted legal aid, the provider under the grant must at once give notice of that fact to every other party to the proceedings, and to the Registrar of the relevant court.
(2) If any other person subsequently becomes a party to the proceedings, the provider must give an equivalent notice to the new party.
(3) If the grant of legal aid is withdrawn, the provider under the grant must notify all other parties to the proceedings of that fact.
[9] It is not clear from submissions whether the wife disputes the date that oral
notice of the husband’s successful legal aid application was given. She submits that:
It is accepted that appellant’s counsel did comment to respondent’s counsel that legal aid was being sought and contemporaneous with the hearing – most likely the day before the hearing – that legal aid had been granted.
I interpret the reference to ‘the day before’ as meaning the previous business day (Friday 28 October) in which case there is no dispute. Even if this is not counsel’s intended meaning, counsel for the husband is clear about having had a telephone conversation on the Friday with her colleague and communicating that legal aid had been granted the previous day.
[10] Regardless of which date notice was given, the wife submits the notice given was insufficient. Even if sufficient notice was given, the wife further submits the husband was only legally aided for “the hearing or part thereof”, and is not immune to an order for costs incurred prior to the application being approved.
[11] If these arguments fail, the wife submits there are exceptional circumstances under s 45 which mean the husband should not be immune to a costs order. Specifically, that the majority of points on appeal were “unreasonable to pursue” and on them “the appellant was demonstrably unsuccessful” (45(3)(d)). The wife also contends that the husband acted unreasonably in refusing a Calderbank settlement offer (45(3)(d)).
Analysis
[12] There are three primary issues. First, for the purposes of s 45, whether the husband was legally aided for the whole or part of the proceedings, so that he is prima facie immune from a costs order. Secondly, whether the s 24 notice requirements were satisfied. Thirdly, whether there are exceptional circumstances that mean a costs order should be made despite the prima facie immunity of s 45.
Was the husband ‘legally aided’ for the whole or part of the proceedings?
[13] Although the submissions are not entirely clear, it appears the wife’s contention is that s 45 only applies to costs incurred after the legal aid application was confirmed. She relies on the decision in Carter v Western Viaduct Marine Ltd where the parties had been involved in a number of proceedings over a period of
several years.4 The plaintiffs had been granted legal aid at an early stage, but the
grant was limited to a particular stage in the claim and was soon exhausted. The plaintiffs then received a substantial payout from ACC and were no longer eligible for legal aid for the remainder of the proceedings.
[14] Relying on the predecessor to s 45 contained in the Legal Services Act 2000, the plaintiffs argued that once they had been granted legal aid for part of the
4 Carter v Western Viaduct Marine Ltd (2003) 16 PRNZ 1034 (HC).
proceedings they were thereafter immune from any order of costs. Williams J
rejected this argument:
[23] … there can be little doubt that when [s 45] speaks of liability for costs orders made ‘with respect to the proceedings’ it must be taken to refer to that part of the proceedings for which the litigant is an ‘aided person’ and not to the whole of the proceedings irrespective of when legal aid is granted. The definition of ‘aided person’ must be read in the same light. Indeed, when the definition of ‘aided person’ refers to a person ‘who is or has been’ granted legal aid, that must refer to the period when legal aid remains extant and not to the period which commences when the proceedings are filed and ends when they are finally concluded.
[24] That is consistent with the terms of the statute, the purpose of which is to enable access to justice by ‘people who have insufficient means to pay for legal services’ (s 3(a)) which suggests that protection from costs orders should be coterminous with an inability to meet legal costs …
[25] It must follow that, even though grants of legal aid are retrospective from the date of the application, there is no basis in statute to take the view that once litigants are granted legal aid they are immune from orders for costs at any stage of the proceeding, either before or after the grant begins or terminates. Put another way, while the statute understandably limits litigants' liability for costs otherwise payable to them during the period when they have ‘insufficient means to pay for legal services’, there is no reason to conclude that the liability of a litigant for costs does not operate in the normal way when the insufficiency ceases.
[15] Taken out of context, some of these remarks could be taken to mean the material factor is the date on which legal aid is granted, and that a person is only
‘legally aided’ in respect of costs that are incurred after that date. However, taken as a whole and in the context of that case it is clear this was not the Court’s meaning. Rather, the position of the Court was that s 45 immunity can only attach to costs for which the legally aided party is eligible for legal aid. In that case the plaintiffs were not immune for the whole of the costs because they were not eligible for legal aid with respect to the whole of the proceedings.
[16] In Gitmans v Alexander, Chambers J held that prior to an application for legal aid being confirmed as successful, where a costs order had been made, but not fixed,
the aided person could not rely on s 45. However, in situations like the one currently at issue he noted:5
I accept that a grant of aid could provide protection to an aided person with respect to steps taken by that aided person prior to the grant if no costs determination in respect of those steps had been made at the date of the grant.
[17] Legal aid grants which apply retrospectively can, therefore, provide s 45 immunity in relation to prior costs where no costs order has already been made. The question is not when legal aid was approved, but to which costs the grant of legal aid attaches.
[18] Although not cited by counsel, an order made by the Court of Appeal in Drummond v Townsend appears capable of being interpreted in a manner inconsistent with Chambers J’s remarks in Gitmans v Alexander.6 In dealing with the question of costs, the Court of Appeal simply stated: “In respect of costs [the appellant] incurred before [the respondent] was granted legal aid, we allow her costs.” No allowance for retrospective application of the grant appears to have been made, although the terms of the grant are not known.
[19] Because of the ambiguity of the situation in that case and the fact the Court did not embark on any interpretation of the statute, I do not consider the case can be treated as binding authority. The principle lying behind s 45 is that those who are unable to pay for their own legal services (as evidenced by a legal aid grant) should ordinarily be excused from paying the costs of the other party. As a result, the immunity should attach to the costs for which legal aid is provided, not the costs incurred in the period of time before legal aid has been approved.
[20] The letter confirming the husband’s legal aid grant does not disclose any limitations or conditions on the grant and I therefore proceed on the basis the
husband was legally aided for the whole of the appeal proceedings.
5 Gitmans v Alexander (2003) 16 PRNZ 653 (HC) at [13].
6 Drummond v Townsend [2011] NZCA 185 at [20], [2011] 2 NZLR 567; Gitmans v Alexander, above n 5.
Are the s 24 notice requirements satisfied?
[21] As summarised at [7], counsel for the husband received a letter confirming the legal aid grant on 27 October. As I have already concluded, it appears that on the
28 October counsel for the husband communicated this news to the wife’s counsel
orally via the phone. On that day they also notified the Court via email.
[22] The wife’s submissions on this point do not make it clear what the alleged insufficiency in the notice is, although it is stated that “the respondent has not been formally advised in writing”. Presumably, then, the submission is that the informal, oral notice given does not meet the requirements under s 24.
[23] Section 24 does not specify the form notice is to take, nor does there appear to be any case law on the issue. Brookers Legal Services commentary notes the following:7
Given the lack of any reference to notice being in writing (in contrast to the former reg 34 of the Legal Services Regulations 1991), it may be possible for a provider to give oral notice only. However, the risks involved in this would no doubt militate against it being a prudent method of communication.
[24] The lack of a specific writing requirement in the provision coupled with the fact that in the circumstance there was clearly no prejudice to the wife by the notice being given orally means, in my view, that s 24 should be viewed as satisfied. The oral notice was given the day after the application was granted, and there is no real basis to contest the husband’s view that this was at the earliest opportunity.
Are there exceptional circumstances that mean that nevertheless an order of costs should be made?
[25] The wife submits there are two grounds for a finding of exceptional circumstances. First, that the husband’s pursuit of the appeal was unreasonable given the lack of evidence and the lack of a legal basis for many of the claims on appeal (45(3)(d)). Second, that his rejection of Calderbank offers was unreasonable
(45(3)(e)).
7 John Rowan (ed) Legal Services (online looseleaf ed, Brookers) at [LA24.02].
(a) Unreasonable pursuit of appeal
[26] In Smyth v Wadland, it was held by the Court of Appeal there were exceptional circumstances under s 45.8 The appeal focused on factual findings of the Court below which could not sensibly be challenged. In making this finding, Arnold J noted:
[10] We acknowledge that many appeals fail. Most, however, raise a point or points that are legitimately arguable. But this appeal did not raise such a point. Rather, it was wholly unarguable. Putting it in the language of s 40(3), we consider that the appellant's pursuit of the appeal was unreasonable, and that, because of his unreasonable decision to pursue it, the respondent was forced to incur costs unnecessarily.
[27] The threshold for exceptional circumstance is a high one but it will be met where it is clear the appeal has no prospect of success.9 In R v L, exceptional circumstances were found to exist because the appeal was “inevitably bound to fail”.10
[28] In this case the husband was not completely without success. On one of the nine points on appeal he succeeded. In relation to some of the unsuccessful points on appeal, the husband submits that it was not unreasonable to pursue them as they related to the Supreme Court’s decision in Clayton v Clayton, and that following that case the legal landscape remained somewhat uncertain.11 Uncertainty prior to the Supreme Court’s decision and its application subsequent to its delivery was a reason cited by Judge Moran in the Family Court in her decision on costs. In deciding that there were no exceptional circumstances at first instance, her Honour noted:12
[25] … I do not accept that [the husband’s] decision to litigate the issues was unreasonable. The merit of his case, or rather the absence of merit, was only apparent following receipt of Clayton v Clayton.
8 Smyth v Wadland [2009] NZCA 189, (2009) 19 PRNZ 361.
9 S v B FC Palmerston North FAM-2006-054-888, 18 December 2006, at [28].
10 Russell v Lawrence HC Auckland CP427/02, 3 June 2003 at [30].
11 Clayton v Clayton [2016] NZSC 30, [2016] 1 NZLR 590.
12 A v A [2017] NZFC 762.
[26] I accept that the applicant’s conduct was often unhelpful but I am not satisfied that any one aspect, or the culmination of all aspects, amounts to exceptional circumstances. Indeed, given the complexity of the issues and the changing legal landscape after Clayton v Clayton, I am not satisfied that an order for costs should be made against the applicant in any event.
[29] It seems, then, that Judge Moran was of the opinion the law following Clayton was still somewhat uncertain and ‘changing’ when she made her decision. That is borne out by my obiter observations which ran counter to some of Judge Moran’s conclusions on this discrete issue. A real question on the approach to be taken to the application of that authority did arise on the hearing of the appeal. However, because the exercise by Judge Moran of her discretion under s 182 of the Family Proceedings Act 1980 was upheld it was not strictly necessary to make any determination, and my findings on this point had no practical effect on the outcome of the appeal.
[30] Having made that observation, the points raised by the husband relating both to s 182 and the interpretation and application of Clayton raised genuine issues that, while unsuccessful, were not unreasonable to pursue.13
[31] Apart from those points, the remaining points on appeal centred largely on challenging findings of fact. With the exception of the point on which the husband was successful, the submissions were marked by a lack of evidential support for the way he sought to contest the Family Court’s findings.
[32] On balance I consider this is a situation where there was a combination of points that raised genuine issues on appeal and points that had no reasonable chance of success. Section 45(3)(d) on which this argument for exceptional circumstances is relevant does not require the whole of the proceedings to be unreasonably brought, although the cited case law suggests a high threshold for unreasonableness giving rise to exceptional circumstances.
[33] It is undesirable and usually ineffective to take a ‘scattergun’ approach to
appeals. Unfortunately it is not an uncommon practice. While I consider the issue to
13 Vivian v Kellerman, above n 2, at [54].
be finely balanced, taken in the whole context of the proceedings I do not consider the appeal was brought unreasonably to the extent that the case falls into the category of exceptional. The wife, through her cross appeal, also raised points that were not particularly persuasive and which also had a paucity of evidential support.
b) Unreasonable rejection of Calderbank offers
[34] In Simpson v Sax, a refusal to settle was found to constitute exceptional circumstances.14 In considering the issue, Brewer J made the following observations:
[9] The rejection of an offer that is worth the same as the result of litigation cannot by itself be unreasonable. A person has a fundamental right of access to the Courts to obtain what he or she is entitled to under the law. Generally, litigants will be held to have unreasonably refused to accept a settlement where they would have been in a significantly better position overall had they accepted the offer of settlement. However, unreasonableness is ascertained taking into account not only the size of the payment, but also the conduct of the recipient of the offer, in particular whether his or her actions contributed unnecessarily to the proceeding. The size of the offer in comparison to the actual costs of counsel is relevant also. So, there will be circumstances where a litigant has failed to act reasonably by rejecting an offer which is similar to the recovery which he or she received in the final Judgment. This is such a case.
[10] These proceedings were for a relatively small sum of money. There was no need for them to come before the Court. Instead of considering Mr Simpson's multiple and reasonable attempts to settle, Ms Sax chose to launch counter-claims against Mr Simpson, many of which were unmeritorious. She also filed applications for a without notice injunction, discovery, review and strike out to which Mr Simpson responded, but which she later discontinued. In doing all of this, Ms Sax unnecessarily prolonged the proceedings and put Mr Simpson to significant expense.
[35] In Murphy v Murphy (no 3), Toogood J found that rejecting a Calderbank offer which proved to be more than double the amount awarded to the plaintiff by the Court was not “properly characterised as a refusal to negotiate a settlement”.15 In that case the plaintiff responded to the offer with an even higher counter-offer. The
Judge was of the view that while in the end the counter-offer was well in excess of
14 Simpson v Sax [2015] NZHC 2686, (2015) 4 NZTR 25-027.
15 Murphy v Murphy (No 3) HC Rotorua CIV 2010-463-797, 22 August 2013 at [20].
what the Court found him entitled to, it was an amount that was based on a reasoned prediction of a favourable outcome. In addition, the plaintiff clearly remained open to further settlement negotiations. As such, his conduct was not unreasonable or exceptional.
[36] Here, there have been Calderbank offers from both the husband and the wife. In the wife’s memorandum it is stated that she “made two offers without prejudice save as to costs with the final offer being made on 27 October 2016. The outcome of the appeal is more favourable than the Calderbank offer.” The husband’s memorandum states that “the position following the Appeal is slightly better than the Calderbank offer that was made by [the wife] on the 27 October 2016 and subsequently declined by [the husband].” It also states that “[The husband] through Counsel also made several Calderbank offers but those too were refused by [the wife]”.
[37] Counsel for the wife has provided evidence of three Calderbank offers: one from the husband and two from the wife. The first is dated 11 October 2016, in which the wife offers a $7,500 reduction in the amount ordered by Judge Moran to be paid to the wife if both parties withdraw and agree for costs to lie where they fall. A second offer from the wife is dated 27 October and is on the same terms except the reduction is $10,000. The husband’s offer, dated the same day as the wife’s second, offers a ‘full and final settlement’ by the sum of $110,000 to be paid by the husband to the wife, which represents approximately $40,000 less than the adjusted amount ordered by Judge Moran (which was $156,886.50 to be paid by the husband as trustee of the family trust to the wife and $5,371.26 from the wife to the husband).
[38] In respect of the successful ground of appeal relating to the carpet, the wife was ordered to pay the husband a further $5,381. Essentially, then, the wife’s final settlement offer would have been advantageous to the husband by $4,619.
[39] There have been offers from both sides, however, this is not a case where the appellant has completely refused to negotiate a settlement. While the husband would have been better off if he had accepted the settlement offer, the cases cited suggest this in itself is insufficient for a finding of unreasonableness giving rise to
exceptional circumstances. It appears no settlement was forthcoming because both parties were optimistic about their chances of success on appeal. Because I consider the husband’s appeal raised some genuine points, this cannot be said to be unreasonable. In the absence of any other conduct by the husband that would make his refusal to settle unreasonable, I do not consider a finding of exceptional circumstances is available.
Conclusion
[40] The appellant was legally aided for the appeal and no exceptional circumstances are present. The immunity in s 45 applies. It follows therefore that costs should lie where they fall. In the absence of the immunity having applied, I would have been minded to have adopted my initial provisional approach and
awarded the wife 75 per cent of her costs on a 2B basis.16
[41] In accordance with the approach taken in my original decision, the judgment may be cited and reported as Vivian v Kellerman.17
Solicitors:
Joynt Andrews Solicitors, Christchurch
Geddes Maciaszek, Christchurch
16 Legal Services Act 2011, s 45(5).
17 Vivian v Kellerman, above n 2.
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